Larger Jets Continue Propping Up BizAv Sales

The tale of two markets continues, with large business jets still selling

Business aircraft manufacturers are preparing to deliver a wave of new products into a market still showing no bankable signs of recovering from its prolonged collapse after the 2008 global economic crisis. It is a tense moment for an industry that has traditionally stimulated itself out of downturns by launching new aircraft and upgrades.

For the manufacturers of larger business jets, which have come through the recession relatively unscathed, the new aircraft will keep the orders flowing. For the makers of lighter jets, which have been hit hard by the downturn, there will be a bump up from the backlog, but they will be looking for a solid recovery before that reserve of orders is exhausted.

Engine and equipment supplier Honeywell, among the industry's most reliable prognosticators, believes there has been a permanent reset in the business-aviation market, leading to a preference for larger aircraft at the expense of small and medium-sized jets, mainly due to financing issues. Normally buyers pay cash for larger jets, while traditional asset-based credit is harder to find for smaller aircraft.

An example is Bombardier, which certificated the upgraded Learjet 75 in November and hoped to fly the all-new Learjet 85 by year-end, for delivery late in 2014. The company expects the backlogs for these light and mid-size jets to give it a near-term delivery boost, but says the order pipeline remains soft, with deals taking longer to complete. Meanwhile Bombardier's upgraded super mid-size Challenger 350, set to enter service in 2014, is selling “very well,” it says, clearly illustrating the divide in the market.

For Cessna, whose product line is mostly light-to-mid-size jets, the need to move upmarket is paramount. The manufacturer will begin deliveries of the light Citation M2 and revamped mid-size Sovereign and high-speed Citation X in 2014, but its hopes for increased deliveries are pinned on the larger Latitude, to fly in 2014 and enter service in 2015, and super-mid-size Longitude, which is scheduled to fly in 2016 and begin deliveries in 2017. Embraer will get a boost when its all-new mid-size Legacy 500 enters service in 2014, followed in 2015 by the medium-light Legacy 450, but the Brazilian manufacturer may soon need a more competitive large-cabin offering than its regional airliner-derived Legacy 650.

A consequence of the market shift to bigger aircraft is increased competition in the large-cabin, long-range sector. Dassault has sets it signs on competing with the Bombardier Global 5000 and Gulfstream G450 with its new Falcon 5X, which is planned to enter service in 2017 with the largest cabin cross-section of any purpose-designed business jet. While Bombardier plans to revamp the Global 5000/6000 to stay competitive, Gulfstream is widely expected to launch its G450 replacement, reportedly code-named P42, in 2014. To compete with Gulfstream's top-of-the-range G650, Bombardier is developing the ultra-large-cabin/ultra-long-range Global 7000/8000 for service entry in 2017 and 2018, respectively.

Meanwhile, the industry barometer—the quarterly shipment reports compiled by the General Aviation Manufacturers' Association (GAMA)—is still trending down, mostly. Business jet deliveries over the first nine months of 2013 fell another 2.1% over a year earlier. But Honeywell has forecast full-year deliveries of just 600-625 jets, down 7-11% from 2012 and less than half of the peak of 1,313 aircraft shipped in 2008.

Flight activity is trending upward and used inventory downward, two key indicators of market health, although the movements are stubbornly slow. The Aviation Week Intelligence Network (AWIN) is forecasting a recovery in jet deliveries, to begin in 2014. AWIN is forecasting 5,315 business-jet deliveries over the next five years, with Cessna ahead of Bombardier and Embraer in numbers, but Bombardier ahead of Gulfstream and Dassault in value (see charts).

Turboprop deliveries in the first nine months of 2013 were up another 13.3%, and are already well above the 2008 peak of 535 aircraft, having bottomed out in 2010. They are being boosted by a global boom in agricultural aircraft sales. Air Tractor and Thrush Aircraft between them delivered 220 single-turboprop ag aircraft in 2012, but were not even listed by GAMA in 2008. In 2013 their shipments were running 13% ahead of last year's pace. Twin turboprops have also recovered strongly, with a 42% increase in deliveries in the first nine months of 2013.

The dollar value of shipments has not declined so precipitously, cushioned by the turboprop resurgence and the resilience of the high-value large business-jet market. The collapse of the low end of the market is dramatic: Almost 65% of the jets delivered by manufacturers in the first nine months of 2013 were super mid-size and above. Back at the industry's peak in 2008, light to mid-size jets made up almost 70% of deliveries. By 2012 their share had fallen below 50%, and it declined further in 2013. Even when the market does recover, AWIN is forecasting that almost 50% of jet deliveries over the next five years will be super midsize and above. Given their higher prices, Honeywell says larger jets will account for more than 80% of production value in the near term.

Geographically, Honeywell's annual survey of operators' purchase expectations shows an increase of demand in North America, which remains the largest market with 61% of the 9,250 jet deliveries forecast from 2013-22. Sales in economically distressed Europe continue to slide and, at 12%, its expected share of the market is now well below Latin America's, which is steady at 18%. Asia-Pacific demand has declined to 5% of the total, and in the Middle East and Africa to 4% of the market.

Charter operators are doing well, and fractional ownership is recovering following consolidation of the industry. Fractionals have not taken a significant share of deliveries in recent years, but NetJets ordered 225 aircraft in 2012 and Directional Aviation another 85 with its purchase of Flexjet from Bombardier in 2013. This should bolster deliveries beginning in 2014.